With cash yielding close to zero, bond mutual fund inflows continued at a good clip in the last couple of months.
Taxable bond fund flows (from ICI):
These fund flows have been driving demand for bonds, and even some of the more speculative credits were able to issue paper. The most notable of those has been the large issue by Ford Motor Credit. It's truly amazing to see a company that was thought to be on the brink 6 months ago come to the market to clear $1.75 billion of bonds. From Bloomberg:
Ford Motor Co., the only major U.S. automaker to forgo federal aid, sold $1.75 billion of three-year notes in the company’s biggest debt offering in almost a year, according to data compiled by Bloomberg.The CCC rated Bonds originally priced at $91.59, and in one day rose to 92.63 to yield 10.44%. These will be the bonds to watch, given the firm's sensitivity to the economy.
The overall high yield market continued it's rally in spite (and possibly because) everyone has been expecting a major pullback. As soon as more people begin to buy the full recovery story, we may get that correction after all. But for now it's happy days again for corporate credit. Including interest received, the HY index amazingly enough, is almost at the pre-crisis levels.
Credit Suisse HY Total Return Index (12/31/85 = 100)
